<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 150,214
<SECURITIES> 0
<RECEIVABLES> 3,103,336
<ALLOWANCES> 117,238
<INVENTORY> 4,621,937
<CURRENT-ASSETS> 8,054,771
<PP&E> 4,855,750
<DEPRECIATION> 1,225,033
<TOTAL-ASSETS> 13,563,518
<CURRENT-LIABILITIES> 4,167,589
<BONDS> 2,300,395
<COMMON> 2,151,575
0
0
<OTHER-SE> 4,349,783
<TOTAL-LIABILITY-AND-EQUITY> 13,563,519
<SALES> 12,312,019
<TOTAL-REVENUES> 12,312,019
<CGS> 6,930,035
<TOTAL-COSTS> 6,930,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 27,000
<INTEREST-EXPENSE> 288,686
<INCOME-PRETAX> 1,076,128
<INCOME-TAX> 419,668
<INCOME-CONTINUING> 656,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 656,460
<EPS-PRIMARY> .08
<EPS-DILUTED> .07
</TABLE>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 1999.
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act for the
transition period from _________ to _________
Commission File Number: 0-12697
Dynatronics Corporation
---------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Utah 87-0398434
- ------------------------------- -----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7030 Park Centre Drive, Salt Lake City, UT 84121
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 568-7000
-------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
X Yes No
----- -----
The number of shares outstanding of the issuer's common stock, no par value,
as of May 10, 1999 is 8,696,314 shares.
Transitional Small Business Disclosure Format.
(Check One) : Yes No X
---- ----
<PAGE>
DYNATRONICS CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
-----------
Condensed Balance Sheet
March 31, 1999 1
Condensed Statements of Income
Three and Nine Months Ended March 31, 1999,
and March 31, 1998 2
Condensed Statements of Cash Flows
Nine Months Ended March 31, 1999,
and March 31, 1998 3
Notes to Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis
Or Plan of Operation 7
Part II. OTHER INFORMATION 13
<PAGE>
[CAPTION]
<TABLE>
DYNATRONICS CORPORATION
Condensed Balance Sheet
(Unaudited)
March 31,
ASSETS 1999
----------------
<S> <C>
Current assets:
Cash and cash equivalents $ 150,214
Trade accounts receivable, less allowance for doubtful
accounts of $117,238 2,943,136
Other receivables 42,962
Inventories 4,621,937
Prepaid expenses 176,908
Deferred tax asset-current 119,614
----------------
Total current assets 8,054,771
Net property and equipment 3,630,717
Excess of cost over book value, net of accumulated amortization
of $380,884 1,083,290
Deferred tax asset-noncurrent 180,410
Other assets 614,331
----------------
$ 13,563,519
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 640,055
Line of credit 2,464,591
Accounts payable 452,343
Accrued expenses 610,600
----------------
Total current liabilities 4,167,589
Long-term debt, excluding current installments 2,300,395
Deferred compensation 594,177
----------------
Total long-term liabilities, excluding current installments 2,894,572
----------------
Total liabilities 7,062,161
Stockholders' equity:
Common stock, no par value. Authorized 50,000,000
shares; issued 8,731,898 shares; outstanding 8,696,314 2,271,671
Treasury Stock, 35,584 shares (120,096)
Retained earnings 4,349,783
----------------
Total stockholders' equity 6,501,358
----------------
$ 13,563,519
================
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
DYNATRONICS CORPORATION
Condensed Statements Of Income
(Unaudited)
[CAPTION]
<TABLE>
Three Months Ended Nine Months Ended
March 31 March 31
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 3,381,088 3,016,141 12,312,019 9,044,568
Cost of sales 2,018,165 1,760,860 6,930,035 5,238,605
----------- ----------- ----------- -----------
Gross profit 1,362,923 1,255,281 5,381,984 3,805,963
Selling, general, and administrative expenses 1,086,862 856,656 3,606,931 2,602,517
Research and development expenses 96,867 100,676 436,412 345,592
----------- ----------- ----------- -----------
Operating income 179,194 297,949 1,338,641 857,854
Other income (expense):
Interest income 19 319 5,206 400
Interest expense (103,218) (61,134) (288,686) (153,483)
Other income, net 11,118 20,604 20,967 63,848
----------- ----------- ----------- -----------
Total other income (expense) (92,081) (40,211) (262,513) (89,235)
Income before income taxes 87,113 257,738 1,076,128 768,619
Income tax expense 31,634 34,128 419,668 218,506
----------- ----------- ----------- -----------
Net income $ 55,479 223,610 656,460 550,113
=========== =========== =========== ===========
Basic Earnings Per Share $ 0.01 0.03 0.08 0.07
=========== =========== =========== ===========
Diluted Earnings Per Share $ 0.01 0.03 0.07 0.06
=========== =========== =========== ===========
Weighted average basic and diluted shares outstanding:
Basic 8,685,347 8,428,791 8,668,400 8,428,157
Diluted 9,007,202 8,800,356 9,069,483 8,616,514
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
DYNATRONICS CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
[CAPTION]
<TABLE>
Nine Months Ended
March 31
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 656,460 550,113
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization of property and equipment 193,576 129,975
Other amortization 69,162 56,612
Provision for doubtful accounts 27,000 12,600
Provision for inventory obsolescence 117,000 85,500
Provision for warranty reserve 144,953 123,792
Deferred compensation 63,063 63,063
Decrease (increase) in operating assets:
Receivables (768,920) (246,126)
Inventories (2,015,787) (840,814)
Prepaid expenses and other assets 98,965 (288,947)
Deferred tax assets 0 (58,456)
Increase (decrease) in operating liabilities:
Trade accounts payable and accrued expenses (255,618) (167,390)
Income taxes payable 11,305 (62,453)
------------ -----------
Net cash used in operating activities (1,658,841) (642,531)
------------ -----------
Cash flows from investing activities:
Capital expenditures (240,452) (75,124)
------------ -----------
Net cash used in investing activities (240,452) (75,124)
------------ -----------
Cash flows from financing activities:
Principal payments under capital lease obligations 0 (4,968)
Principal payments on long-term debt (172,633) (118,782)
Net change in line of credit 1,348,950 465,397
Proceeds from sale of common stock 125,091 12,240
------------ -----------
Net cash provided by financing activities 1,301,408 353,887
------------ -----------
Net decrease in cash and cash equivalents (597,885) (363,768)
Cash and cash equivalents at beginning of period 748,099 544,615
------------ -----------
Cash and cash equivalents at end of period $ 150,214 180,847
============ ===========
Supplemental cash flow information
Cash paid for interest (net of amounts capitalized) 288,686 153,483
Cash paid for income taxes 414,588 337,700
Supplemental Disclosure of Non-cash Investing and Financing
Activities Treasury stock acquired in consideration for
common stock issued as a result of a cashless stock option
exercise. 120,096 0
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
DYNATRONICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
NOTE 1. PRESENTATION
The financial statements as of March 31, 1999 and for the three and nine
months then ended were prepared by the Company without audit pursuant to
the rules and regulations of the Securities and Exchange Commission (SEC).
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all necessary adjustments to
the financial statements have been made to present fairly the financial
position and results of operations and cash flows. All adjustments were of
a normal recurring nature. The results of operations for the respective
periods presented are not necessarily indicative of the results for the
respective complete years. The Company has previously filed with the SEC
an annual report on Form 10-KSB which included audited financial statements
for the two years ended June 30, 1998. It is suggested that the financial
statements contained in this filing be read in conjunction with the
statements and notes thereto contained in the Company's 10-KSB filing.
NOTE 2. NET INCOME PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standard No. 128
("SFAS 128"), "Earnings Per Share," effective January 1, 1998. SFAS 128
establishes a different method of computing the net income per common share
than was previously required under the provisions of Accounting Principles
Board Opinion No. 15. Net income per common share is computed based on the
weighted-average number of common shares and, as appropriate, dilutive
common stock equivalents outstanding during the period. Stock options are
considered to be common stock equivalents.
Basic net income per common share is the amount of net income for the
period available to each share of common stock outstanding during the
reporting period. Diluted net income per common share is the amount of net
income for the period available to each share of common stock outstanding
during the reporting period and to each share that would have been
outstanding assuming the issuance of common shares for all dilutive
potential common shares outstanding during the period.
In calculating net income per common share, the net income was the same for
both the basic and diluted calculation. A reconciliation between the basic
<PAGE>
and diluted weighted-average number of common shares for the three months
and nine months ended March 31, 1999 and 1998 is summarized as follows:
[CAPTION]
<TABLE>
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Basic weighted average number
of common shares outstanding
during the period 8,685,347 8,428,791 8,668,400 8,428,157
Weighted-average number of dilutive
common stock options outstanding
during the period 321,855 371,565 401,483 188,357
--------- --------- --------- ---------
Diluted weighted average number
of common and common equivalent
shares outstanding during the period 9,007,202 8,800,356 9,069,483 8,616,514
========= ========= ========= =========
</TABLE>
Common stock equivalents of 154,457 outstanding during the three- and nine-
month periods ended March 31, 1999 that could potentially dilute basic
earnings per share in the future were not included in the computation of
diluted earnings per share because to do so would have been anti-dilutive
for the period.
NOTE 3. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standard No. 130
("SFAS 130"), "Reporting Comprehensive Income," effective July 1, 1998.
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in financial statements. For the periods ended
March 31, 1999 and 1998, comprehensive income was equal to the net income
as presented in the accompanying condensed statements of income.
NOTE 4. INVENTORIES
Inventories consisted of the following:
March 31,
1999
------------
Raw Material $ 3,032,915
Finished Goods 1,782,182
Inventory Reserve (193,160)
------------
$ 4,621,937
============
<PAGE>
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment were as follows:
March 31,
1999
------------
Land $ 354,744
Buildings 2,807,163
Machinery and equipment 1,693,844
------------
4,855,751
Less accumulated depreciation
and amortization 1,225,034
------------
$ 3,630,717
============
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Condensed
Financial Statements (unaudited) and Notes thereto appearing elsewhere in
this Form 10-QSB.
Results of Operations
Sales for the quarter ended March 31, 1999 increased 12 percent to
$3,381,088 compared to $3,016,141 in the same period of the prior year.
Sales for the nine months ended March 31, 1999 increased 36 percent to
$12,312,019 compared to $9,044,568 in the prior year period. The increases
in sales for the year are attributable to the introduction of the new
Synergie Lifestyle System product line which began shipping in July 1998
together with a 34 percent year-to-date increase in sales of the Company's
line of medical supplies and soft goods. However, the January 1, 1999
implementation of new Medicare reimbursement guidelines related to physical
therapy services for patients in long-term care facilities had a greater
effect on slowing sales growth during January and February than was
anticipated. In comparison, sales in the months of March and April 1999
trended upward toward more traditional levels.
The Synergie AMS device, which is part of the Synergie Lifestyle System,
provides non-invasive vacuum massage treatments to skin and subcutaneous
tissues. During the reporting quarter, the Company received formal
clearance from the U.S. Food and Drug Administration to expand labeling
claims for the Synergie AMS device to include the claim of "temporary
reduction in the appearance of cellulite." This claim is strongly supported
by the Company's research study which revealed that 91 percent of the
participants reported a favorable reduction in the appearance of cellulite.
Total gross profit for the quarter ended March 31, 1999 increased to
$1,362,923 as compared to $1,255,281 in the prior year period. Gross
profit for the nine-month period ended March 31, 1999 increased to
$5,381,984 compared to $3,805,963 in the same period of the previous year.
These increases are directly attributable to sales of the new Synergie
product line and increased sales of medical supplies and orthopedic soft
goods. Gross margins as a percentage of sales declined during the
reporting quarter to 40.3 percent compared to 41.6 percent in the same
quarter of the prior year due to a shift in product mix. Sales of the
Company's lower margin orthopedic soft goods increased during the reporting
quarter while higher margin sales of medical devices declined. The decline
in device sales is the result of the previously mentioned Medicare
reimbursement changes as well as increased competition among device
manufacturers. Gross margin percentages increased during the nine-month
period to 43.7 percent compared to 42.1 percent due to the higher margins
associated with the Company's Synergie products which comprised a high
percentage of overall sales in the first quarter of fiscal year 1999.
Selling, general and administrative (SG&A) expenses for the three- and
nine-month periods ended March 31, 1999, increased to $1,086,862 and
$3,606,931 respectively, as compared to $856,656 and $2,602,517
respectively in the prior year periods. Expenses associated with
introducing and supporting the new Synergie product line account for a
significant portion of increased SG&A expenses during the quarter and nine-
month period. In addition, efforts at the Company's Columbia operations to
<PAGE>
convert to new manufacturing methods resulted in increased operating
expenses of approximately $223,000 for the nine months ended March 31,
1999. The majority of this conversion is now complete and is anticipated
to increase capacity and improve operating efficiencies.
Research and development (R&D) expenses in the three months ended March 31,
1999 totaled $96,867, compared to $100,676 in the same period of the prior
year. R&D expenses for the nine months ended March 31, 1999 were $436,412
compared to $345,592 in 1998. As a percentage of sales, R&D expenses in
the three and nine months ended March 31, 1999 were 2.9 percent and 3.5
percent, respectively, compared to 3.3 percent and 3.8 percent for the same
periods one year ago. R&D expenses for the reporting periods were
associated primarily with development efforts on the new Synergie product
line and upgrading the Company's ultrasound products. The Company expects
R&D expenses as a percentage of sales to continue at current levels through
the remainder of the year ending June 30, 1999.
Interest expense for the reporting quarter increased to $103,217 compared
to $61,134 in the prior year period while interest expense for the nine-
month period increased to $288,686 compared to $153,483 in 1998. These
increases were associated with higher balances on the Company's line of
credit due to increased inventories as well as new borrowings to finance
capital improvement projects in fiscal 1998.
Income before tax for the quarter ended March 31, 1999 decreased to $87,113
compared to $257,738 during the same period of the prior year. Income
before tax for the nine months ended March 31, 1999 increased to $1,076,128
compared to $768,619 in the prior year period. The decrease in pre-tax
profits for the quarter ended March 31, 1999 was a result of lower margins
associated with the shift in product mix, higher sales and marketing
expenses related to the Synergie product line, and higher labor costs and
operating expenses at the Columbia operation. Pre-tax income for the nine-
month period increased due to sales of the new Synergie products and
improved sales volumes of medical supplies and soft goods, together with
the higher gross margins associated with the Synergie product line.
Income tax expense for the three and nine months ended March 31, 1999 was
$31,634 and $419,668, respectively, as compared to $34,128 and $218,506,
respectively in the prior year periods. The effective tax rate for the
1999 quarter was 36.3 percent compared to 13.2 percent for the same quarter
last year. The effective tax rate for the nine months ended March 31, 1999
was 39.0 percent compared to 28.4 percent in 1998. The lower effective tax
rates in the prior year periods reflect an adjustment of the valuation
allowance for deferred tax assets which was reduced to -0- as of June 30,
1998 as detailed in the Company's annual report on Form 10-KSB as of that
date.
Net income for the quarter ended March 31, 1999 decreased to $55,479
compared to $223,610 in the prior year period. Net income for the nine
months ended March 31, 1999 increased to $656,460 compared to $550,113 in
the same period of the previous year.
Liquidity and Capital Resources
The Company expects revenues from operations, together with amounts
available under the Company's bank line of credit will be adequate to meet
its working capital needs related to its business and its planned capital
expenditures for the upcoming operating year.
<PAGE>
The Company's current ratio at March 31, 1999 was 1.93 to 1. Current
assets represent 59 percent of total assets.
Trade accounts receivable are from the Company's dealer network and are
generally considered to be within term. All accounts payable are within
term with the Company continuing its policy of taking advantage of any and
all payment discounts available.
The Company has a revolving line of credit with a commercial bank with a
maximum lending amount of $3,500,000 based on 30 percent of inventory (up
to a lending amount of $1 million) and up to 80 percent of eligible
accounts receivable. The outstanding balance on the line of credit at
March 31, 1999 was $2,464,591. The line is secured by the Company's
inventory and accounts receivable and bears interest at the bank's "Prime
Rate," which was 7.75 percent per annum at March 31, 1999. The Company may
also elect to lock in fixed rates on this agreement for 30 to 90 day
periods at a rate equal to the London Interbank Offered Rate (LIBOR) plus
2.70% per annum. This line is subject to annual renewal and matures on
November 30, 1999. Accrued interest is payable monthly.
Inventory levels, net of reserves, at March 31, 1999 totaled $4,621,937
while net accounts receivable were $2,943,136. During the current fiscal
year, inventories and receivables increased significantly to support the
Company's introduction of the Synergie Lifestyle System. In addition,
management has made a stronger effort to reduce backorders by increasing
inventory quantities. Financing for these increases has been provided
through cash flow from operations together with the Company's line of
credit facility.
Long-term debt excluding current installments at March 31, 1999 totaled
$2,300,395 comprised primarily of the mortgage loans on the Company's
office and manufacturing facilities. The principal balance on the mortgage
loans is approximately $2.2 million with monthly principal and interest
payments of $26,900.
Business Plan
With the introduction of the new Synergie Lifestyle System product line,
the Company is expanding its distribution network and opening new markets
for products directed at the fields of plastic surgery, dermatology, and
related non-medical aesthetic markets. The first direct mail piece
advertising the new product line generated over 4,000 requests for
information. This level of interest, coupled with strong indications of
interest from the dealer network, led management to anticipate
significantly more sales than were initially realized. As a result,
inventory levels are currently higher than they would normally be. As
sales of the new Synergie products increase, the Company expects
inventories to decrease to more traditional levels. The Company believes
the main reason sales of the Synergie products have not reached expected
levels is the newness of the technology, the public's lack of experience
with or exposure to the Synergie AMS or similar products, and the need
for expansion and refinement of distribution channels. Interest in the
product line remains strong, however, as sales continue to increase month
by month. As the market becomes more familiar with this new product line,
the Company believes that sales will continue to show steady improvement.
<PAGE>
Other opportunities in the aesthetic market have been identified and plans
are underway to develop other products and treatments. As the Aesthetic
Division continues to grow and gain momentum, efforts will be focused on
establishing a distribution network distinct from current distribution to
allow greater sales focus and effort in both the rehab and aesthetic
markets.
In recent years the popularity of nutritional supplements has grown
significantly. It is estimated by industry sources that sales of
nutritional supplements in the United States this year will reach 25
billion dollars with an annual growth rate estimated at 15-20%. In
conjunction with knowledgeable consultants in the field of nutritional
supplements, the Company has developed a line of 19 nutritional
supplements. These supplements, which were initially developed as an
integral part of the Synergie Lifestyle System, include such products as a
multivitamin/mineral compound, a St John's Wort formulation, an antioxidant
complex, an herbal calmative, and a calcium formula. The Company is now
exploring ways to market these products directly to consumers including
establishing an Internet presence to facilitate direct ordering. With
currently high public interest in nutritional supplements, the Company
believes that the high quality of the Synergie nutritional supplements will
attract consumers as well as professional practitioners who in the past
have not made nutritional supplements a part of their practice.
Since the acquisition of Superior Orthopaedic Supplies in May 1996, the
Company has nearly tripled sales of medical products and supplies compared
to pre-acquisition levels. The start-up of the treatment table and
rehabilitation products manufacturing operation in South Carolina has
further broadened the Company's product line. The Company believes that
offering a broad product line is of strategic importance as clinics
continue to consolidate and develop centralized purchasing policies that
favor single source suppliers for their medical device and supplies needs.
To capitalize on its broader product line, the Company published its first
full-line catalog in January 1997. In February 1998, the Company
introduced a new version of its catalog with twice the number of products
as the first catalog. The Company has just finished its 1999-2000 catalog
with over 800 products and is in the process of distributing it through
its distribution network to practitioners. This new catalog is expected to
continue to stimulate sales growth of the Company's products.
The Company continues to evaluate acquisition opportunities that would
further expand manufacturing operations and add new products to a growing
line of existing products. The established criteria for such acquisitions
is relatively narrow to protect against an acquisition that may be
detrimental to shareholder value. Furthermore, the Company's ability to
successfully negotiate an acquisition may depend in part on the market
price of the Company's common stock. A higher stock price may facilitate
acquisitions. There can be no assurance that any acquisition or
disposition of a business, products or technologies by the Company will not
result in substantial charges or other expenses that may cause fluctuations
in the Company's operating results. The use of the Company's common stock
or securities convertible to common stock for an acquisition or the offer
and sale of such securities to raise capital to fund an acquisition would
result in immediate and perhaps substantial dilution to existing
shareholders. In addition, the stock market is subject to volatility and
rapid increases and decreases in share price, which may not necessarily be
reflective of or bear a direct relationship to the actual book value of the
Company's common stock or of the Company.
<PAGE>
Current economic conditions in many Pacific Rim countries have hurt sales
not only to Japan, but to other countries including Korea and Taiwan.
However, with sustained marketing efforts combined with improved economic
stability, the Company anticipates sales will improve in this part of the
world. Initial marketing efforts in Europe are expected to be undertaken
in fiscal year 2000, continuing the Company's international expansion. As
a prerequisite to this effort, the Company is in the process of qualifying
its "50 Series Plus" products for the CE Mark which will allow these
devices to be marketed in all European Union member states. The Company
believes it will complete the CE Mark registration in early fiscal year
2000. In addition, the Company is making progress in its efforts to meet
the requirements for ISO 9001 certification which is a validation of the
Company's quality manufacturing practices. This certification is also
expected to be completed within the next six months. International markets
are more difficult to develop and subject to risks such as currency
fluctuations, political and economic instability and regulatory barriers to
entry by foreign governments.
The Company recognizes the need to continually upgrade and re-engineer
existing products as well as introduce new products if it is to remain
competitive. The Company believes its continuing commitment to research
and development enables it to be a technological leader in the market. New
products and engineering improvements are constantly being evaluated and
developed.
Y2K Disclosure
The Company is aware of the risks associated with the operation of
information technology and non-information technology systems as the new
century approaches. The "Year 2000" problem is pervasive and complex,
with the possibility that it will affect many technology systems, including
computer programs and imbedded microprocessor technology. The Year 2000
problem is the result of the rollover of the two digit year value from "99"
to "00". Such systems that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to
complete manufacturing, process transactions, send invoices, collect
payments, or engage in similar normal business activities.
The Company has carefully assessed its state of readiness, and is in the
process of assessing the readiness of third parties with which the Company
interacts, with respect to the Year 2000 problem. The Company intends to
use both internal and external resources to reprogram, or replace and test
its software for Year 2000 modifications as needed. However, if such
modifications or conversions are not made, or are not completed timely, the
Year 2000 problem could have a material impact on the operations of the
Company. The Company has initiated formal communications with all of its
significant suppliers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
problems.
The Company is presently not aware of any Year 2000 issues that have been
encountered by the Company or any third party which could materially affect
the Company's operations. Based on the most recent assessment, the
Company believes that with modifications to existing software and
conversions to new software, any Year 2000 problems that it may have with
<PAGE>
its own systems can be mitigated without significant expense.
Notwithstanding the foregoing, there can be no assurance that the Company
will not experience operational difficulties as a result of Year 2000
issues, either arising out of internal operations, or caused by third-party
service providers, which individually or collectively could have an adverse
impact on business operations or require the Company to incur unanticipated
expenses to remedy any problems.
Forward-Looking Statements and Risks Affecting the Company
The statements contained in this Report on Form 10-QSB that are not purely
historical are "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act. These statements regard the Company's
expectations, hopes, beliefs, anticipations, commitments, intentions and
strategies regarding the future. They may be identified by the use of
words or phrases such as "believes," "expects," "anticipates," "should,"
"plans," "estimates," "intends," and "potential," among others. Forward-
looking statements include, but are not limited to, statements contained in
Management's Discussion and Plan of Operation regarding the Company's
financial performance, revenue and expense levels in the future and the
sufficiency of its existing assets to fund future operations and capital
spending needs. Actual results could differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements for the reasons detailed in the Company's Annual Report on Form
10-KSB under the headings "Description of Business" and "Risk Factors."
The fact that some of the risk factors may be the same or similar to the
Company's past reports filed with the Securities and Exchange Commission
means only that the risks are present in multiple periods. The Company
believes that many of the risks detailed here and in the Company's other
SEC filings are part of doing business in the industry in which the Company
operates and competes and will likely be present in all periods reported.
The fact that certain risks are endemic to the industry does not lessen
their significance.
The forward-looking statements contained in this Report are made as of the
date of this Report and the Company assumes no obligation to update them or
to update the reasons why actual results could differ from those projected
in such forward-looking statements. Among others, risks and uncertainties
that may affect the business, financial condition, performance,
development, and results of operations of the Company include:
- - market acceptance of the Company's technologies, particularly the new
Synergie Lifestyle System product line and other new or re-designed
products;
- - the ability to hire and retain the services of trained personnel at
cost-effective rates;
- - rigorous government scrutiny or the possibility of additional government
regulation of the industry in which the Company markets its products;
- - potential effects of adverse publicity regarding nutritional
supplements;
- - reliance on key management personnel;
- - foreign government regulation of the Company's products and
manufacturing practices that may bar or significantly increase the
expense of expanding to foreign markets;
- - economic and political risks related to the Company's expansion into
international markets;
<PAGE>
- - failure of the Company to sustain or manage growth including the failure
to continue to develop new products or to meet demand for existing
products;
- - the Company's reliance on information technology;
- - the timing and extent of research and development expenses;
- - the Company's ability to keep pace with technological advances, which
can occur rapidly;
- - the loss of product market share to competitors;
- - potential adverse effect of taxation;
- - the ability of the Company to obtain required financing to meet changes
or other risks described above; or
- - the Company's inability or failure to identify and to manage its Year
2000 risks
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending to which the
Company is a party or of which any of its property is the subject
which require disclosure in this statement.
Item 4. Submission of Matters to a Vote of Security Holders
N/A
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
No. Description
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27 Financial Data Schedule
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DYNATRONICS CORPORATION
-----------------------
Registrant
Date 5/13/99 /S/ Kelvyn H. Cullimore, Jr.
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Kelvyn H. Cullimore, Jr.
President
Chief Executive Officer
Date 5/13/99 /S/ John L. Hales
----------------------- -----------------------------
John L. Hales
Chief Financial Officer and
Principal Accounting Officer
<PAGE>
